On Thursday, Birkenstock (NYSE: BIRK) missed expectations for third-quarter profit, as the German sandal maker’s global expansion drive and production ramp-up compressed its margins, sending its shares down 12% in early trading.
The company has been opening more stores in newer markets such as India and Japan amid robust global demand and to increase sales from its own channels, where products are typically sold at full price.
The sandal maker’s CEO Oliver Reichert said customers are moving toward more in-store purchases, making it important to increase the company’s own retail fleet.
Birkenstock (NYSE: BIRK) is also building additional manufacturing capacity and ramping up existing facilities such as at Pasewalk, Germany, to ensure adequate supply of its trendy cork-based sandals and closed-toe shoes.
As a result, gross profit margin dropped 220 basis points to 59.5% in the third quarter.
“They are investing for future growth and so they have introduced different factories and facilities to ramp up,” BMO Capital Markets analyst Simeon Siegel said.
Birkenstock posted an adjusted profit of 0.49 euro per share in the third quarter, missing LSEG estimates of 0.52 euro.
The company’s revenue rose 15% in the Americas and 19% in Europe as Birkenstock continues to gain market share at retailers such as Nordstrom and Foot Locker, which are stocking up their shelves with top-performing brands including Roger Federer-backed On and Deckers’ Hoka.
Still, revenue growth eased from the second quarter, signaling some level of caution among consumers.
Birkenstock’s revenue rose 19.3% to 564.8 million euros ($626.76 million), slightly missing estimates of 565.2 million euros.
“Some of the Barbie bounce from last year may also have dissipated, and clearly some shoppers are becoming more cautious. Even so, this does not look set to be the start of a downbeat chapter. Birkenstock is still alive and kicking in the fashion pack,” said Susannah Streeter, Hargreaves Lansdown’s head of money and markets.
The company maintained its annual sales and core profit forecasts.
($1 = 0.9011 euros)
(Source: ReutersReuters)
